The Starbucks Effect
About five years ago, a Starbucks opened a couple of blocks from my home. The arrival of the coffee giant was met with mixed reviews in the neighbourhood, but I was secretly grinning into my grande frappuccino… I knew as soon as it opened its doors, the value of my home would start to go up.
They call this “The Starbucks Effect”: when Starbucks opens a new location, the value of nearby homes increases. According to American real estate research group Zillow, houses near a Starbucks appreciate much quicker than those not near one. And the closer they are to the Starbucks, the faster they appreciate. The numbers are staggering: between 1997 and 2014, the average American home appreciated 65 percent; homes within a quarter mile of a Starbucks increased by a whopping 96 percent.
Coincidence? No way. Starbucks is a huge and very strategic corporation – they do their research, and open new stores in locations that they believe have potential. The arrival of that distinctive green and white sign is an indication to developers that the neighbourhood is on the rise (and that people there are willing to spend five bucks on a cup of coffee.) And where Starbucks leads, others businesses are sure to follow … a few cute bistros appear, and then some trendy shops… and suddenly people are throwing around that real estate buzzword of the moment: gentrification.
There are other high end retail chains whose appearance also results in a spike in property values – Whole Foods being one – but Starbucks is one of the few that will hang a new shingle in an area that is still in the very early stages of revitalization. In fact, according to “Zillow Talk” (a book published by the folks at Zillow earlier this year), a new Starbucks location actually causes house prices to rise, not the other way around. Some people think Starbucks waits until the area has already started to take off, and then moves in. Nope. Like the Warren Buffett of caffeine delivery, they have a knack for getting in on the ground floor, and establishing a foothold in budding markets just before things start to really take off.
Determining these locations is both an art and a science, according to Arthur Rubinfeld, the guy who oversees Starbucks’ location selection process from its corporate headquarters in Seattle. The coffee giant employs about 20 analytics experts across the globe, who pore over maps and “geographic information systems data” (stuff like traffic patterns and business development), to get the big picture in terms of real estate selection. But it also employs dozens of regional teams, who have their ears to the ground in local markets, and know which way the winds are blowing in specific areas of the city. This big picture/small picture approach is almost always a winner. It doesn’t work every time, but pretty darn close.
We’ve seen evidence of this time and again here in Toronto. Case in point: the store that opened in a formerly boarded-up building at the corner of Queen and Logan in 2006. Remember Leslieville before it became Leslieville? I rest my case.
There are many factors to keep in mind when deciding where to buy a home, but the Starbucks Effect is pretty indisputable. So keep your eye open for new Starbucks locations in areas that are just beginning to be referred to as “up and coming” – areas like Regent Park and Little India. And then give me a call.